Professional Documents
Culture Documents
Topics
Economic System
Economic Planning
Agriculture
Industry and Trade
Economic System
An economy consists of the economic system of a country or region in terms of the production and
consumption of goods and services. Three types of economy:
1. Capitalist economy
Consumers and producers are the two vital elements of an economy.
Individuals are free to own and control their economic resources.
Everyone is independent to choose his or her own business, profession and occupation.
Capitalist economy is also known as free-trade economy.
2. Socialist economy
Socialist economy is an economy which is owned and controlled by society.
Economic resources are owned by society and are used in the public interest.
All important decisions are taken by the government.
Individuals in the socialist economy do not have the right to own private properties.
The economy is managed and controlled by the Planning Commission, the central authority.
Income inequality is the least.
3. Mixed economy
Mixed economy is a mixed form of socialist and capitalist economy.
Certain economic activities are fully owned and controlled by the government.
All the economic activities are not allowed by the government.
Private and public sectors co-exist in the economy.
India has adopted a mixed economy.
All kinds of economic systems face central problems. This is because it is not possible for any economy to
produce an unlimited variety of goods with limited resources. Central problems include problems with
decision making about
What to produce?
How to produce?
For whom to produce?
www.topperlearning.com 2
ECONOMICS INDIAN ECONOMY 1950–1990
Economic Planning
During the period from 1950 to 1990, the unemployment rate was high and the per capita income and
Gross Domestic Product were low. The industrial sector was not developed, and Indian handicrafts
were ruined by the colonial government. The agricultural sector was in a backward and stagnant stage.
Hence, India opted for planning to fight against backwardness and to start economic development.
India opted for socialism as Indian leaders were motivated by the success of Soviet Union’s
planning.
Indian planners were well aware of the shortage of private capital and lack of incentive for the
private sector to function in the social sector.
It was planned to adopt a socialist idea with an emphasis on the public sector along with
encouragement of contribution from the private sector in non-priority industries through a
democratic set up.
Comprehensive planning for the country was made by the government with specific objectives of
five-year plans.
Hence, planning was initiated to make the public sector to work within the basic economic
framework, and private sector firms were encouraged towards economic growth.
A plan specifies the set of objectives to be achieved within a specified period of time. It shows the
means and ways to allocate available resources in an optimum manner in different developmental
activities of a country. The duration of plans in India is of five years and is called a five-year plan. The
first five-year plan was introduced in April 1951.
www.topperlearning.com 3
ECONOMICS INDIAN ECONOMY 1950–1990
In India, there are limited resources to fulfil unlimited wants. So, it was essential for planners to have
specific goals for a specific period. Planners had to determine specific and general goals to allocate
scarce resources in an optimum manner. Goals are the ultimate targets to ensure successful plans.
The goals of five-year plans were growth, modernisation, equity and self-reliance.
Planning objectives
1. Growth
Growth refers to an increase in the level of national income over a period of time.
Increase in the countries capacity to produce the goods and services within an economy
Stock of
Resources + Innovative
Technology = Production of
Goods & Services
Flow of goods and services must consistently increase, and therefore, the standard of living of
people will increase over a period of time.
When an economy grows, structural transformation occurs.
Structural transformation implies decrease in economy’s dependence on the agricultural
sector, and the share of the industrial and service sectors in the total GDP will increase over
the years.
Growth in the performance of the service sector with higher contribution to the total GDP is an
indication of economic development.
2. Modernisation
Modernisation is the use of advanced technology in the production of goods and services so that
productivity can be increased.
It does not have any negative impact on employment generation. In fact, modernisation and
employment generation go hand in hand.
Hence, the production of goods will be increased to meet the demand of people resulting in
generation of employment opportunities in the economy.
Thus, modernisation as a planning objective does not create contradiction in the light of
employment generation.
www.topperlearning.com 4
ECONOMICS INDIAN ECONOMY 1950–1990
3. Self-reliance
Self-reliance is reducing or eliminating the dependency on other nations, i.e. preventing import of
goods from other nations and encouraging producing those goods domestically.
It is essential for a developing nation like India to follow self-reliance as a planning objective.
This is because at the time of independence, India was completely dependent on foreign countries
for food, technology and capital goods which affected India’s sovereignty adversely.
This led to foreign government interference in Indian internal policies.
So, India adopted the following ways to become self-reliant:
4. Equity
Equity refers to equitable distribution of the national income.
One of the important objectives of planning is to get stable growth with equity in the economy.
For every nation, it is essential to have growth along with equity.
If there is only growth (without equity) in the economy, then it means that everyone is not
enjoying the benefit of growth.
In this regard, planners have to ensure that the prosperity of economic growth should reach all
the people. Individuals should be able to fulfil their basic needs of food, house, education and
healthcare.
The government should ensure appropriate allocation of wealth among the people to reduce
economic inequality.
So, ‘growth with equity’ is a more rational and desirable objective of planning for a nation.
www.topperlearning.com 5
ECONOMICS INDIAN ECONOMY 1950–1990
Growth Development
Refers to a sustained increase in GDP over a Refers to growth with equity along with
period of time which raises the standard of living structural change in the economy.
of the people.
Brings quantitative changes, i.e. increase in Brings both quantitative and qualitative
level of production in an economy. changes, i.e. increase in the level of
production along with the improvement in
the technology and standard of living.
Is an automatic process. Is the outcome of planned activities.
Agriculture
The policy makers of independent India dealt with issues related to ‘no growth and no equity’ during
colonial rule. They introduced land reforms and promoted the use of high-yielding variety (HYV) seeds in
agriculture.
www.topperlearning.com 6
ECONOMICS INDIAN ECONOMY 1950–1990
Green Revolution
At the time of independence, a large chunk of farmers were dependent on the monsoon because of
which they faced innumerable problems in farming activities.
Technology and machinery used in farming were obsolete which resulted in low agricultural
productivity. Famines affected agricultural productivity in the 1940s.
Indian agriculture suffered from low productivity of food grains as more emphasis was given to
cash crops during the colonial rule.
This resulted in the shortage of food grains in India.
Landlords and lenders exploited farmers because they were dependent on landlords and rural money
lenders to meet their credit requirements.
Stagnation in agriculture was broken by the Green Revolution. It refers to sustained increase in the
production of food grains. This revolution was made possible by using HYV seeds, fertilisers, pesticides
and irrigation facilities.
www.topperlearning.com 7
ECONOMICS INDIAN ECONOMY 1950–1990
Benefits of the Green Revolution for farmers
Subsidies to farmers
A subsidy is a direct or indirect monetary assistance granted by the government for production activities.
Economists have different views on whether subsidies encourage farmers to use new technology or are a
huge burden on government finances. For and against points highlighting farm subsidies in India:
www.topperlearning.com 8
ECONOMICS INDIAN ECONOMY 1950–1990
However, subsidies help farmers to cope with advanced technology and higher productivity. Government
planning is required to target farmers who need financial assistance and avoid the wastage of resources
which increase the burden of the government.
At the time of Independence, the Indian economy was backward and underdeveloped. During the
planning period, the public sector was given a leading role in industrial development because of the
following reasons:
1. Lack of capital: Private entrepreneurs lacked capital for setting up industries as a large amount
was required. Thus, the government took the responsibility of developing industries in the economy.
2. Lack of incentive: The Indian market was comparatively small which discouraged Indian
industrialists to invest in major projects (even though they had sufficient capital to invest). Thus,
the government promoted the industrial sector.
3. Development of India on socialist base: Indian planners wanted to develop the Indian economy
on a socialist base, so they focused on government-funded major projects.
4. Social welfare: In India, there were certain projects in which the profit margin was negligible. Thus,
the private sector was not interested in such projects and it was only the public sector which could
bring the balanced regional growth with the establishment of government units in the
backward areas. This move could increase the employment and income of the people.
The private sector was regulated under IPR 1956 to promote industrialisation in backward regions for
reducing regional inequality. The following steps were taken:
They have to obtain a licence to make an entry in the economy.
Strict licencing policy was introduced to establish industry in urban areas, whereas easier licencing
was provided to establish new industries in backward regions.
Promoting industrialisation in backward regions was the main motive behind IPR 1956. Concession
in the form of taxation was given for units which were established in backward regions.
Obtaining licences to establish a new unit has also been made mandatory for existing firms.
www.topperlearning.com 9
ECONOMICS INDIAN ECONOMY 1950–1990
In this way, the private sector was regulated to reduce regional inequality and promote
industrialisation.
Many public sector undertakings incur huge losses and are a drain on the economy’s resources.
However, the public sector plays an important role in improving social welfare and economic
development of India. The usefulness of the public sector can be better understood through the following
points:
Small-scale industry
A small-scale industry is defined with reference to the maximum investment allowed on the assets of a
unit.
A small-scale unit can invest a maximum of rupees 5 crore.
Small-scale industries are labour intensive and thus generate more employment.
It promotes equality across different sections of society as it generates employment per unit of
investment.
Small-scale industries cannot compete with large industrial units. Hence, production of certain
products is reserved for the small-scale industry.
www.topperlearning.com 10
ECONOMICS INDIAN ECONOMY 1950–1990
Thus, domestic firms were protected from foreign competition with the import substitution policy.
www.topperlearning.com 11
ECONOMICS INDIAN ECONOMY 1950–1990
Mind Map
www.topperlearning.com 12
ECONOMICS INDIAN ECONOMY 1950–1990
Q2: ‘Growth with equity is a rational and desirable objective of planning.’ — Do you
agree?
Ans: Yes, it is essential for every nation to have growth along with equity.
When there is only growth (without equity) in the economy, then everyone is not enjoying
the benefit of growth.
So, the government should ensure appropriate allocation of wealth among the people
to reduce economic inequality.
Q3: ‘Import substitution can protect domestic industry.’ — Comment on the given
statement.
Ans: Domestic firms were protected from foreign competition with the help of import
substitution policy.
An inward looking trade policy aimed at discouraging the imports of goods and services
which can be produced domestically and decreasing the dependency on foreign
goods and services.
Domestic producers were protected by imposing tariffs and quotas on imported
goods.
Q4: Why was the public sector given an important role in the process of growth and
development after Independence?
Ans: During the planning period, the public sector was given an important role in the
process of growth and development because of the following reasons:
Lack of capital: Private entrepreneurs lacked capital for setting up industries as a
large amount was required.
Lack of incentive: The Indian market was comparatively small which discouraged
Indian industrialists to invest in major projects.
Social welfare: The public sector could bring balanced regional growth with the
establishment of government units in the backward areas.
www.topperlearning.com 13
ECONOMICS INDIAN ECONOMY 1950–1990
Q5: Discuss the different types of land reforms implemented in the agricultural sector.
Ans: Types of land reforms:
Abolition of intermediaries: Ownership of land to motivate cultivators to make
improvements in agricultural production.
Land ceiling: Fixing a ceiling to redistribute surplus land among landless cultivators
and prevent them from holding land below the minimum size.
Landholding consolidation: Preventing segmentation and sub-division of landholding to
bring one large piece of land under cultivation.
Regulation of rent: Determining the rent payable by tenant cultivators.
www.topperlearning.com 14